REVIEW OF LITERATURE

CHAPTER- II
REVIEW OF LITERATURE
1.Environmental and Financial Performance Literature:
Abstract:
"We review the growing literature relating corporate environmental performance to financial
performance. We seek to identify achievements and limitations of this literature and to highlight
areas for further research. Our primary interest is to assess the adequacy of the literature in
informing corporate managers how, when, and where to make pro-environment investments that
will pay off with financial returns for long-term shareholders. To do so, we create a conceptual
framework that maps the influence of regulators, public health scientists, environmental
advocates, consumers, employees, and other interested parties upon corporate financial returns.
Our discussion has relevance to all parties interested in influencing corporate actions that affect
the environment."
2. An Investigation of the Perceived Financial Performance:
Abstract
"This paper is primarily based on Rogers diffusion of innovations theory and Augers empirical
study. An empirical research study was conducted to investigate the perceived financial
performance of commercial printing firms for conducting business-to-customer (B2C) activities
using Web technology. Financial performance was measured using four financial indicators:
sales, profits, costs, and return-on-investment (ROI). The diffusion of innovations theory states
that an innovation brings changes to a company. Web technology is an innovation that affects
companys performance. This paper investigates the effect of Web technology on commercial
printing firms financial performance."
3. Strategic and Financial Performance Implications of Global Sourcing Strategy: A
Contingency Analysis:
Abstract
"Using a contingency model of global sourcing strategy, this study investigated the moderating
effects of sourcing-related factors on the relationship between sourcing strategy and a product's
strategic and financial performance. The results lent some support to the contingency model of
global sourcing strategy in that product innovation, process innovation and asset specificity were
significant moderator variables for financial, but not strategic, performance. However, the results

provided no support for bargaining power of suppliers and transaction frequency as moderator
variables. In other words, in achieving high financial performance for a product, whether a
particular sourcing strategy should be used for a particular product depended on the levels of
product innovation, process innovation and asset specificity."
4. Implications for Financial Performance and Corporate Social Responsibility:
Abstract
"We investigate whether CEO implicit motives predict corporate social performance and
financial performance. Using longitudinal data on 258 CEOs from 118 firms, and controlling for
country and industry effects, we found that motives significant predicted both financial
performance (Tobin's Q and the CAPM) and social responsibility. In general, need for power and
responsibility disposition were positively predictive whereas need for achievement and affiliation
were negatively predictive of outcomes. Contrary to previous theorizing, corporate social
responsibility had no link to financial performance. Our finding suggest that executive
characteristics have important consequences for corporate level outcomes."
5. Financial Statement Analysis: A Data Development Analysis approach:
Abstract
"Ratio analysis is a commonly used analytical tool for verifying the performance of a firm. While
ratios are easy to compute, which in part explains their wide appeal, their interpretation is
problematic, especially when two or more ratios provide conflicting signals. Indeed, ratio
analysis is often criticized on the grounds of subjectivity that is the analyst must pick and choose
ratios in order to assess the overall performance of a firm. In this paper we demonstrate that Data
Envelopment Analysis (DEA) can augment the traditional ratio analysis. DEA can provide a
consistent and reliable measure of managerial or operational efficiency of a firm. We test the null
hypothesis that there is no relationship between DEA and traditional accounting ratios as
measures of performance of a firm. Our results reject the null hypothesis indicating that DEA can
provide information to analysts that is additional to that provided by traditional ratio analysis. We
also apply DEA to the oil and gas industry to demonstrate how financial analysts can employ
DEA as a complement to ratio analysis."

INTRODUCTION:
FINANCIAL STATEMENT:
A financial statement is an organized collection of data according to logical and consistent
accounting procedures. Its purpose is to convey an understanding of some financial aspects of a
business firm. It may show a position at a moment of time as in the case of a balance sheet, or
may reveal a series of activities over a given period of time, as in the case of an income
statement. Thus, the term financial statement generally refers to the basic statements such as :
i)
ii)
iii)
iv)

The income statement

The balance sheet
A statement of retained earnings
A statement of change in financial position in addition to the above two statement.

FINANCIAL STATEMENT ANALYSIS: It is the process of identifying the financial strength

and weakness of a firm from the available accounting data and financial statement. The analysis
is done by properly establishing the relationship between the items of balance sheet and profit
and loss account the first task of financial analyst is to determine the information relevant to the
decision under consideration from the total information contained in the financial statement. The
second step is to arrange information in a way to highlight significant relationship. The final step
is interpretation and drawing of inferences and conclusion. Thus financial analysis is the process
of selection relating and evaluation of the accounting data/information.
This studying contain following analysis:
1)
2)
3)
4)

Comparative analysis statement

Common-size analysis statement
Ratio analysis
Trend analysis

1) COMPARATIVE FINANCIAL STATEMENT: Comparative financial statement is those

statements which have been designed in a way so as to provide time perspective to the
consideration of various elements of financial position embodied in such statements. In these
statements, figures for two or more periods are placed side by side to facilitate comparison. But
the income statement and balance sheet can be prepared in the form of comparative financial
statement.
(I) COMPARATIVE INCOME STATEMENT:
The income statement discloses net profit or net loss on account of operations. A comparative
income statement will show the absolute figures for two or more periods. The absolute change
from one period to another and if desired. The change in terms of percentages. Since, the figures
for two or more periods are shown side by side; the reader can quickly ascertain whether sales
have increased or decreased, whether cost of sales has increased or decreased etc.

(II)COMPARATIVE BALANCE SHEET:

Comparative balance sheet as on two or more different dates can be used for comparing assets
and liabilities and finding out any increase or decrease in those items. Thus, while in a single
balance sheet the emphasis is on present position, it is on change in the comparative balance
sheet. Such a balance sheet is very useful in studying the trends in an enterprise.
2) COMMON-SIZE FINANCIAL STATEMENT:
Common-size financial statement are those in which figures reported are converted into
percentages to some common base. For e.g. In the income statement the sales figure is assumed
to be 100 and all figures are expressed as a percentage of sales. Similarly, in the balance sheet,
the total of assets or liabilities is taken as 100 and all the figures are expressed as a percentage of
this total.
3) RATIO ANALYSIS:
Ratio analysis is a widely used tool of financial analysis. The term ratio in it refers to the
relationship expressed in mathematical terms between two individual figures or group of figures
connected with each other in some logical manner and are selected from financial statements of
the concern. The ratio analysis is based on the fact that a single accounting figure by itself may
not communicate any meaningful information but when expressed as a relative to some other
figure, it may definitely provide some significant information the relationship between two or
more accounting figure/groups is called a financial ratio helps to express the relationship
between two accounting figures in such a way that users can draw conclusions about the
performance, strengths and weakness of a firm.
CLASSIFICATION OF RATIOS:
A) Liquidity ratios
B) Leverage ratios
C) Activity ratios
D) Profitability ratios

4. CASH FLOW STATEMENT ANALYSIS:

Cash flow statement is a statement which shows the sources of cash inflow and uses of cash outflow of the business concern during a particular period of time. It is the statement, which
involves only short-term financial position of the business concern. Cash flow statement
provides a summary of operating, investment and financing cash flows and reconciles them with
changes in its cash and cash equivalents such as marketable securities. Institute of Chartered

Accountants of India issued the Accounting Standard (AS-3) related to the preparation of cash
flow statement in 1998